The scenarios are being developed by the Defense Advanced Research Project Agency (DARPA), which funds Pentagon research projects, under an experimental program known as Future Markets Applied to Prediction, or FutureMAP.

The agency is betting that trading in the futures contracts, modelled on the type of speculative transactions common in commodity markets, will boost traditional intelligence methods.

Lawmakers and media commentators have assailed those methods since the September 11, 2001 terrorist attacks on New York and the Pentagon.

"Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions," the agency said in a statement Monday.

But US Senators Ron Wyden of Oregon and Byron Dorgan of North Dakota, both Democrats, said they wanted the program stopped before it starts registering traders on August 1.

"The idea of a federal betting parlor on atrocities and terrorism is ridiculous and grotesque," Wyden, who sits on the Senate Intelligence Committee, told reporters Monday.

Wyden has been prominent among congressional critics of another DARPA program, Terrorism Information Awareness (TIA), a computer surveillance initiative that raised concerns about invasions of individuals' privacy.

He said the new "Policy Analysis Market" trading scheme is overseen by TIA chief retired admiral John Poindexter, a central figure in the Iran-Contra scandal, in which US officials illegally funded Nicaraguan rebels with proceeds from also-illegal arms sales to Iran in the mid-1980s.

Dorgan described the Internet scheme as "unbelievably stupid."

"How would you feel if you were the King of Jordan and you learned the US defense department was taking bets on your being overthrown within a year?" he added, noting that Jordan has long been a US ally.

In much the same way as Middle East analysts have used petroleum futures contract prices to predict events in the region, DARPA's contracts would focus on "the economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of US involvement with each," according to the agency's "Policy Analysis Market" Web site.

Traders, who would have to deposit money with the market before being able to make any trades, would buy contracts for an event they considered likely and attempt to sell contracts if they thought it unlikely.

The more buyers there were for a contract -- say, Arafat's assassination in the first quarter of 2004 -- the more likely it would be considered and the higher the price. If the event came to pass, buyers would cash in and sellers would lose out.

Up to 1,000 individuals will be allowed to register starting Friday and will begin live trading on October 1, DARPA's Web site said. Their numbers would be increased to at least 10,000 worldwide by January 1.

The Internet market site would be run by private technology firm Net Exchange with data and analysis provided by the Economist Intelligence Unit, the business information arm of the publisher of The Economist magazine.

Government agencies will be barred from taking part and from access to traders' identities or funds, DARPA said.

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